Buy and hold deal not looking like it will meet estimates. Now what?

[Chris M.]

bought a SFH, with the intention of fixing it and renting. We are well into the renovation and things are not really looking very rosy. In hindsight, we allowed ourselves to put too much scope into the renovation, and cost overruns have caused our planned investment amount to balloon to 340k. At the same time, we had been basing our expected rental rate off a similar but smaller house on the same block which was leased 2 years ago for 2400/month, but they just put it back on the market for only 2150, which concerns me about the possibility of us getting 2500-2600/month, which is what I'd estimated.

The numbers I'm using are:

Invested: 340k

(financed with our personal home equity loans @4% +/- but those are adjustable rates)

Expected ARV anywhere from 350-400k.

It's really hard to guess at this because this house has no basement and almost all the other houses in the area do. Personally I'd never buy one without a basement, so it's hard for me to look at it and compare it with all comps with basements. One smaller house without a basement recently sold for 330k. Our house will be maybe 25% bigger and more updated.

Property Taxes: $6000

Insurance: $1000

Maintenance: $3000?

Monthly Rent: 2200-2500

So based on these numbers, we would be cashflow positive by a couple thousand.

I'm hoping that maintenance for the first several years will be less than 3000/year as much will be new (appliances, bathrooms, plumbing, furnace, AC, water heater,roof).

Another mitigating factor is that I think this area is set to appreciate in value quite well. There is a lot of home improvement activity in this area. There are quite a few instances of homes getting additions and smaller houses being torn down to build new going on in the vicinity of this house.

We could just sell the house but I figure we'd end up paying something like 20k in closing costs, so if we sold we could end up with 10-30k in profit. Much lower than we expected when we started this project, and a pretty small return for such a large effort. But hopefully still a profit.

We are not full time investors, so by having this money tied up in a less-than-great deal isn't really preventing us from buying other properties or the like

So, if you were me what would you recommend? Cut bait and sell, or hold onto it at a slim cash flow rate and hopefully enjoy some appreciation in home values?

[James Wise]

@Chris M. the good news is i'd be shocked if you spent 3k on maintenance a year on any single family house, let alone a fully rehabbed one.